FINANCIAL RATIO PROBLEMS

1. Nativity Corporation and Christmas Company disclose the following data on their December 31,
2020 balance sheet (in thousands):
Nativity Corp. Christmas Co.
Debt P 160,000 P 640,000
Stockholders’ Equity 640,000 160,000
Total equity P 800,000 P 800,000
Earnings before interest and taxes P 600,000 P 600,000
Interest expense 15,000 60,000
Required: For each company, compute the following:

Nativity Corp. Christmas Co.

Debt ratio Total liabilities
¿
total assets

= 0.02 = 0.08
Debt-equity Debt
¿
stockholde s ' Equity

= 0.25 =4
Equity multiplier total Assets
¿
stockholder s' Equity

= 1.25 =5
Times interest earned Earnings before interest ∧taxes
¿
interest expense

= 40 = 10

2. Marvi Corporation and Alyssa Company revealed the following information on their published
financial statements:
Marvi Corp. Alyssa Co.
Current assets P 375,000 P 125,000
Long-term investments 50,000 300,000
Plant, property and equipment 50,000 50,000
Intangibles 15,000 15,000
Other assets 10,000 10,000
Total assets P 500,000 P 500,000
Required: For each company, determine the percentage component of each asset over
total assets.
Marvi Corp. Alyssa Co.
Current Assets 75% 25%
Long-term investments 10% 60%
Plant, property and equipment 10% 10%
Intangibles 3% 3%
 Other assets 2% 2%

3. Sta. Claus Corporation’s sales, current assets, and current liabilities have been reported as
follows over the last five years (amounts in thousands):
2020 2019 2018 2017 2016
Sales P 10,800 P 9,600 P 9,200 P 8,640 P8,000
Current assets 2,626 2,181 2,220 2,267 2,225
Current liabilities 475 450 350 325 250
Required: Express all net sales, current assets, and current liabilities on trend index.
Round your decimals up to 2 places.
a. Use 2016 as the base year
2020 2019 2018 2017 2016
Sales 135 120 115 108 100
Current assets 118 98 99.8 101.9 100
Current Liabilities 190 180 140 130 100

b. Use 2020 as the base year

2020 2019 2018 2017 2016
Sales 100 88.9 85.2 80 74.1
Current Assets 100 83.1 84.5 86.3 84.7
Current Liabilities 100 94.7 73.7 68.4 52.6

4. You are been asked by the Chief Financial Officer of Reyna Corporation to analyze its liquidity
position in 2020. You have been gathered the following data from the records of the company
and industry published reports (in thousands):
Reyna Corp. Industry Average
Average cash P 3,500 P 2,000
Average trade receivables 8,000 10,000
Average inventory 6,500 7,000
Average trade payables 14,000 12,000
Net cash sales 20,000 25,000
Net credit sales 200,000 150,000
Cost of sales 130,000 112,000
Net credit purchases 140,000 96,000

The company uses a 360-day year base. The credit terms offered to customers are 2/10, n/40.
Suppliers give credit terms of 3/20, n/40.
Required: For Reyna Corporation and the industry, compute the following:

Reyna Corp. Industry Average

Receivable Net Credit Sales
¿
turnover Average Accounts Receivable

200,000 150,000
= ¿
8,000 10,000
 = 25 times = 15 times
Collection 360 days∈a year
¿
period Average Receivable Turnover

360 days∈a year 360 days∈a year

= 25 = 15
= 14.4 days/15 days = 24 days
Inventory Cost of goods sold
=
turnover Average inventory

130,000 112,000
¿ ¿
6,500 7,000
= 20 times = 16 times
Inventory 360 days∈a year
= Inventory turnover
days (Days
to sell
inventory) 360 days∈a year 360 days∈a year
¿ ¿
20 16
= 18 days = 22.5 days/23
days
Payable
turnover credit purchases
¿
average accounts payable
96,000
140,000 = 12,000
=
14,000 = 8 times
= 10 times
Payment Average accounts payable
=
period Total credit purchases /days
12,000
14,000 = 96,000/360
¿
140,000/360 = 44.99/45 days
= 36 days 28.57
Operating = Inventory period + Account receivable
cycle period

Inventory period = days in a year/

inventory turnover

Inventory Turnover = Cost of Goods

Sold/Average Inventory
Accounts Receivable Period = days in a
 year/Receivables Turnover

Receivables Turnover = Credit Sales/

Average Accounts Receivable

= 18 + 14.4 = 22.5 + 24
=32.4/33 days = 46.5/47 days
Net cash Cash Conversion Cycle = DIO + DSO – DPO
cycle
Average Inventory
DI 0= x days∈a year
Cost of goods sold

Average Accounts Receivable

D SO= x days ∈a year
Total credit sales

Average Accounts Payable

D PO= x days∈a year
Cost of goods sold CCC = 22.5 + 24 -
38.57
CCC = 18 + 14.4 – 38.77 = 7.93/8 days
= 6.37/6 days
Net working = Total current assets – Total current
capital liabilities

= 18,000 – 14,000 = 19,000 – 12,000

= P 4,000 = P 7,000
Working Net Sales
¿
capital Average working capital
turnover
= 55 = 22.5
Current current assets
¿
ratio current liabilities
19,000
18,000 =
12,000
=
14,000 = P 1.58
= P 1.29
Acid-test Quick assets
¿
(quick- Current Liabilities
assets) ratio
11,500 12,000
¿ =
14,000 12,000
= P 0.82 = P 1.00